World Economy

Financial Leviathans Under IMF Review

Financial Leviathans Under IMF Review Financial Leviathans Under IMF Review

Some of the world’s largest and most connected financial systems will undergo their mandatory five-year financial stability review by the International Monetary Fund in 2016.

Under the aegis of the Financial Sector Assessment Program, the IMF is assessing big, systemically important countries such as Germany and Britain, as well as medium-sized, and in some cases regionally important financial systems such as Russia and Mexico.

In the wake of the global economic crisis, the IMF has strengthened its surveillance of systemic countries’ financial systems. In September 2010, the IMF’s Executive Board agreed the world’s top 25 financial sectors would undergo a mandatory financial check-up every five years. In 2014, the IMF expanded the list to 29 countries, based on updated criteria.

The IMF program assesses three key components of financial stability in all countries:

1. The soundness of banks and other major financial institutions, including through stress tests

2. The quality of financial system oversight, including banking, securities, and insurance where the sectors are systemically important, the macroprudential framework; and

3. The ability of policymakers, and financial safety nets to withstand and respond effectively in case of deep financial stress.

  Systemic Risks

In 2016, the IMF teams will focus their analysis on systemic risks and macroprudential policies.

China: The FSAP will look into how the financial system’s structure and performance have evolved in recent years. The FSAP will assess the resilience of the financial sector to shocks emanating from abroad, and China’s ongoing financial liberalization and macroeconomic rebalancing.

Germany: The FSAP will be the first review of a eurozone country since the establishment of the Single Supervisory Mechanism and the Single Resolution Mechanism. The assessment will tackle the complexity of the new institutional set up and systemic risk implications across multiple financial sectors, and focus on the effectiveness of the new mechanisms in addressing the fault lines that have emerged in the recent crisis in Europe.

Ireland: The first assessment since the global crisis will look at the condition of, and prospects for, a much-transformed financial system: banks have shed debt and raised capital, and become more retail focused, but still bear a legacy of nonperforming loans.

Lebanon: The large banking sector dominates the financial sector and has been critical to macro-financial stability in a volatile economy. The FSAP will explore vulnerabilities and policies to increase resilience of the sector in the face of challenging domestic and regional economic circumstances.

Russia: The FSAP will assess the impact on the Russian financial sector of weak potential growth, low oil prices, and exchange rate volatility against the background of continuing western sanctions. The FSAP will also examine the ability of the financial sector to support sustainable growth, which will require comprehensive reforms to safeguard the sector’s stability and efficiency.

Sweden: Against the background of a rapid housing market growth, the FSAP team will focus on macroprudential arrangements and policies. Turkey: A large, systemically important, emerging market economy with a high external financing requirement. Systemic risks and macroprudential policies and arrangements will constitute a key focus of this FSAP.

Britain: In the world’s most complex, diversified, and globally interconnected financial system, the FSAP will assess the extent to which the regulatory overhaul that was implemented after the crisis has reduced systemic risk and the possibility of adverse spillovers to the rest of the world.

In 2015, the IMF concluded assessments of the financial sectors in Azerbaijan, Bosnia and Herzegovina, the Central African Economic and Monetary Community, Mauritania, Morocco, Norway, Samoa, Tajikistan, and the United States.

The International Monetary Fund has downgraded its forecast for Russia’s economic contraction in 2016 to 1%, sources familiar with the matter told Tass. For 2017 the IMF expects the Russian economy to grow by 1%.

According to the sources, those are figures from the updated report on economic outlook due to be officially presented in London on January 20.

Last year the IMF expected Russia’s economy to contract by 0.6% in 2016.